The inheritance and estate taxes are a common concern for parents or grandparents leaving assets to younger heirs. A common question is whether leaving a certain amount of money to children or grandchildren will hurt the heirs in terms of a hefty taxes burden. In reality, not everyone pays the inheritance tax, whether state or federal.
Most states impose only a single tax, and lump inheritance and estate together into one. But in Maryland, there is both an inheritance tax AND an estate tax. The state Comptroller defines the inheritance tax as “the clear value of property that passes from a decedent to some beneficiaries. The tax is levied on property that passes under a will, the intestate laws of succession, and property that passes under a trust, deed, joint ownership, or otherwise.” Whereas the estate tax is defined as “a state tax imposed on the transfer of property in a decedent’s estate.”
More information from the Comptroller of Maryland: https://taxes.marylandtaxes.gov/Individual_Taxes/Individual_Tax_Types/Estate_and_Inheritance_Tax/Tax_Information/
In 2018, the federal estate and gift tax exemption was $5.6 million per individual. This means that one person can leave an heir up to $5.6 million without paying a federal estate or gift tax.
For the state estate tax, the limit was changed in 2018 to align with the federal amounts and was set at $5 million for decedents who pass on or after January 1, 2019.
For the inheritance tax, most relatives are exempt from the state’s 10% inheritance tax. Close relatives, such as children, spouses, parents and grandparents, siblings, and stepchildren, are considered exempt. Charities who receive a contribution from an estate are also exempted.
To reduce the eventual inheritance paid after the grantor’s death, it is possible to gift a certain amount of money yearly to an heir and thus reduce the estate over time. Maryland doesn’t have a separate gift tax, but a federal tax is imposed on monetary gifts over $15,000 given by one person to another one person. This means that one parent can give one child up to $15,000 per tax year without paying a tax penalty; or two parents can each individually give a child or child and child’s spouse each up to that amount without paying the tax.
Who Pays the Taxes?
So in essence, not everyone who lives in Maryland is going to be subject to inheritance, estate, or gift taxes. A certain amount is exempted, and unless your estate or gift exceeds those amounts, the beneficiary won’t be subject to the tax. Talk to an estate or tax professional for questions about your specific situation if you’d like to know more.